Key Highlights
- Gold tumbled as much as 2.2%, dropping under $4,650 per ounce during Monday trading
- Diplomatic negotiations between the US and Iran in Pakistan failed to produce an agreement
- President Trump authorized a naval blockade of the Strait of Hormuz effective 10 a.m. ET
- March CPI data showed inflation climbing 3.3% annually, primarily due to energy costs
- Federal Reserve rate cut expectations now delayed by at least a year, creating headwinds for gold
The precious metal experienced a significant decline Monday following the breakdown of US-Iran diplomatic efforts and Washington’s decision to impose a naval blockade on the Strait of Hormuz.
Spot gold plummeted as much as 2.2% during the session, momentarily trading beneath $4,650 per ounce. The metal showed some resilience later, recovering to $4,729.02 an ounce by early afternoon Singapore time.
Gold futures contracts similarly retreated, shedding 0.9% to settle at $4,743.20 per ounce.
Diplomatic discussions conducted over the weekend in Pakistan between American and Iranian representatives concluded without meaningful progress. Major points of contention included Tehran’s nuclear program, authority over the Strait of Hormuz, and Iranian support for regional militant organizations.
Following the unsuccessful talks, President Donald Trump authorized a naval blockade of the strategic waterway, scheduled to commence at 10 a.m. Eastern Time Monday. Trump further announced that US forces would intercept any commercial vessel that had compensated Iran for transit through the strait.
Prior to the outbreak of hostilities, approximately 20% of global crude oil and liquefied natural gas shipments transited through the Strait of Hormuz.
Inflation Pressures Weigh on Precious Metals
Energy markets reacted swiftly to the blockade announcement, with oil and natural gas prices jumping significantly. This development elevated inflation forecasts and diminished prospects for imminent Federal Reserve interest rate reductions.
Gold generates no yield, making it particularly sensitive to interest rate environments. The metal typically thrives when borrowing costs decline. Elevated rate expectations diminish its appeal relative to yield-bearing assets.
Friday’s Consumer Price Index report compounded the bearish sentiment. The data revealed inflation accelerated to 3.3% year-over-year in March, a substantial increase from February’s 2.4% reading. Gasoline prices experienced an unprecedented surge, accounting for approximately three-quarters of the monthly inflation advance, per Bureau of Labor Statistics figures.
CME FedWatch indicators reveal market participants have postponed anticipated rate cut timing by a minimum of 12 months.
The US dollar index advanced roughly 0.4% Monday, creating additional pressure on gold valuations. Because gold trades in dollar denominations, dollar strength increases purchase costs for international buyers.
Silver declined nearly 2% to $74.39 per ounce. Platinum prices remained relatively stable, while palladium registered modest gains.
Gold’s Trajectory During Recent Conflict
The yellow metal has surrendered approximately 10% of its value since Middle Eastern hostilities erupted in late February. During the conflict’s initial phase, a liquidity crisis forced investors to liquidate gold holdings to offset losses across other asset classes.
In recent sessions, gold has recovered portions of those losses as economic growth concerns provided fundamental support.
Analysts at ANZ Banking Group suggested gold may retest the recent $4,650 floor but could find support at those levels. Swiss private banking institution Union Bancaire Privée reduced gold allocations from approximately 10% to 3% of portfolios, though the firm indicated it is now incrementally rebuilding bullion positions for clients.
The US producer price index report is scheduled for release later this week.
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